Demand Destruction Emerges As Americans Cancel Road Trips
Gasoline demand destruction is underway as most fuel stations in the country average around $5 a gallon for regular (87 octane). New data finds that high gas prices deter some Americans (most likely the working poor) from road trips this summer.
Conference Board's data found Americans who planned a road trip in the next six months fell to 22.7% in June. Only 36% intend to take a vacation within the next six months, the lowest level in the dataset going back four decades.
Slumping gas demand growth is a sign that higher prices are beginning to alter the spending patterns of consumers in what seasonally should be a busy travel season.
"Demand is currently below seasonal averages, but the key thing for crude is that it is still growing," Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, told Bloomberg.
A four-week moving average of implied gas demand dropped to about 9 million barrels daily, or 600,000 barrels less than the 2015-19 average.
Ed Moya, a senior market analyst at Oanda, said, "given where fuel costs are and how expensive dining out has become ... everything is becoming too pricey in America, and lower and middle-income households are feeling the pinch."
We agree with Moya that low to middle-tier consumers have maxed out their credit cards and drained savings, barely able to survive the inflation storm -- which has forced them to change spending habits dramatically.
The big concern during this summer's travel season is that energy prices could still go much higher. A new report from CNN said the White House is quietly analyzing the worst-case scenario of crude oil at $200 per barrel.
We have outlined before that refinery capacity bottlenecks are the main driver for higher fuel prices (not Russia).
Supply fundamentals remain tight as limited refinery capacity will persist. A genuine market rebalancing will only happen through demand destruction with higher prices.
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